Policy Research Domains (Major Policy Research Domains) I. Maintaining Economic Dynamism under the Adverse Demographic Conditions of Low Fertility and Aging Population

Idiosyncratic Risk and Economic Fluctuation

Project Leader/Sub-Leader


NAKAJIMA Tomoyuki Faculty Fellow



2007 - 2008

Two types of risks exist in the economy. One is aggregate risk, which affects the entire economy, and the other is idiosyncratic risk that individual economic agents face. Because they can be fully insured, idiosyncratic risks do not pose a problem in the perfect financial market. However, in imperfect financial markets, idiosyncratic risks are significant factors that have to be taken into account in macroeconomic policies. The so-called "disparity problem" can be viewed as an issue generated by idiosyncratic risks in imperfect financial markets. The purpose of this project is to undertake theoretical and quantitative analysis of desirable macroeconomic policies in an environment where idiosyncratic risks exist.

May 18, 2007 - June 30, 2008

Major Research Results


RIETI Discussion Papers